Technology and the Two Margins of Labor Adjustment: A New Keynesian Perspective

Furlanetto, Francesco; Sveen, Tommy; Weinke, Lutz

doi:10.2139/ssrn.3334892

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Technology and the Two Margins of Labor Adjustment: A New Keynesian Perspective

Norges Bank Working Paper 7/2018; ISBN 978-82-8379-044-3

33 Pages Posted: 15 Feb 2019

See all articles by Francesco Furlanetto

Canova et al. (2010 and 2012) estimate the dynamic response of labor market variables to technological shocks. They show that investment-specific shocks imply almost exclusively an adjustment along the intensive margin (i.e., hours worked), whereas for neutral shocks the largest share of the adjustment takes place along the extensive margin (i.e., employment). In this paper we develop a New Keynesian model featuring capital accumulation, two margins of labor adjustment and a hiring cost. The model is used to analyze a novel economic mechanism to explain that evidence.

Keywords: Technological Shocks, Sticky Prices, Labor Market

JEL Classification: E22, E24, E32

Suggested Citation: Suggested Citation

Furlanetto, Francesco and Sveen, Tommy and Weinke, Lutz, Technology and the Two Margins of Labor Adjustment: A New Keynesian Perspective (May 29, 2018). Norges Bank Working Paper 7/2018; ISBN 978-82-8379-044-3 , Available at SSRN: https://ssrn.com/abstract=3334892 or http://dx.doi.org/10.2139/ssrn.3334892